EMA Submission. to the. Electricity Authority. on the. Transmission Pricing Methodology Issues and Proposal (Second Issues Paper)

Transcription

1 EMA Submission to the Electricity Authority on the Transmission Pricing Methodology Issues and Proposal (Second Issues Paper) Submitted July

2 About the EMA The EMA has a membership of more than 4000 businesses representing around 40% of the New Zealand workforce. The EMA advocates on behalf of its members to bring change in areas which can make a difference to the day-to-day operation of our members, such as RMA reform, infrastructure development, employment law, skills and education along with export growth. We have a solid reputation as a trusted and respected voice of business in New Zealand, and our presence makes a difference. Therefore, we are constantly called on to speak at conferences, comment in the media and partner or provide advice to Government on matters which impact all employers (such as ACC, health and safety, pay equity). The EMA also provides its members with employment relations advice from industry specialists, a training centre with more than 600 courses and a wide variety of conferences and events to help businesses grow. CONTACT For further contact regarding this submission: Alan McDonald Policy Director - Advocacy Employers and Manufacturers Association Private Bag Auckland 1142 Telephone: Mobile: alan.mcdonald@ema.co.nz Submission 1. The EMA cannot support the Electricity Authority s (the Authority) proposal for drastically altering the Transmission Pricing regime (TPM) for the New Zealand electricity network. 2. The Authority acknowledges its approach will create winners and losers in pricing changes but takes the view that this is the correct thing to do for the long-term national good. 3. How a third tier regulator thinks it is in a position to determine the national good is a question Government may want to consider more closely especially since the current

3 pricing has been in place for the national good since the electricity network was first completed. 4. From the EMA s viewpoint it looks more like the Authority have solved a small issue for Meridian (a $57 million per annum windfall), Contact and Tiwai Point ($21 million plus per annum) by turning it into a larger issue for the rest of the country and blaming a need for greater security in the Auckland network as justification for the change to the pricing regime. 5. We challenge the Authority s presumption that regions such as Auckland are getting a superior grid service to other parts of the country. We are well placed to make this insight given more than 50% of New Zealand s commercial enterprises are located in our membership region from Taupo to the Far North. 6. We are not aware of any greater quality of supply applying to the Auckland and upper North Island regions than applying to the rest of the country so there is no reason for the upper North Island to be carrying the burden for the costs of the national grid. But as justification for increases, blaming Auckland, tends to play well for the rest of the country. 7. Auckland customers will foot a near $80 million dollar increase, with the proposed changes also resulting in Whangarei customers facing increased charges of 58% and customers in Kaitaia, Kerikeri and Kaikohe going up by 121%. Our members in some of the more remote areas of the Eastern Bay of Plenty also face significant increases. 8. These are massive increases by any measure and appear to sit outside the regulator s mandate to protect the long term benefit of end-users. 9. Small to medium businesses in Auckland face increases of $1,500 to more than $7,000 per annum with those needing high voltage connections schools and hospitals for example paying an additional $22,000 per annum. 10. In addition we are aware of large-scale energy users within our region who will face multi-million dollar increases per annum. Such is the scale of these increases, in at least two cases well into eight figures, there is local concern that the increased pricing will drive overseas-based head offices to review the practicality of continuing to operate in New Zealand. 11. These are major employers scattered throughout our membership area.

4 12. If the test of good regulation is that it is applied equally to all much like our much internationally admired tax system then why is there provision within the new proposals for exceptions or exemptions to the proposed TPM? 13. Including a Prudent Discount Policy (PDP) is an overt acknowledgement that the new proposals are flawed in the first place. So why bother having them? Then there are the concerns and lack of clarity around who would qualify for the PDP, businesses with multiple sites or just one particular site operation, and who administers such a regime. 14. There are other flaws in the proposed system. 15. Many of the country s major exporters are based in the EMA s membership region with higher electricity costs impacting on their competitive ability. The country s most intense and successful dairying region will see individual farmers foot increases of several thousand dollars per form unit. We are also aware of irrigation costs rising by as much as 40% in some areas, again likely to affect key export earners in horticulture, viticulture and the wider agricultural sector in our region. 16. Investment decisions around access to electricity at current prices suddenly look wrong while some of our members have taken decisions around creating their own generation capabilities that will see the playing field skewed under the new regime. 17. There is no provision for a transition period from a pricing regime that has been in place for decades to a new system that transfers costs around the country and creates many losers in the redistribution of costs. 18. We also have a concern that the Authority believes its new pricing proposals will encourage just in time investment in new infrastructure. History would suggest New Zealand is just about the last place you could rely on for the provision of such investment. We are a country that historically underinvests in infrastructure and we are still playing catch up and paying the price for failure to provide this infrastructure just ask Aucklanders. 19. There are perverse outcomes where changes to electricity pricing will take more out of the Northland economy than the Government currently provides to the region in economic development initiatives. 20. There is also the possibility that if the Ngawha geothermal generation site is ramped up to full capacity, Northland would become a new exporter of generation into the grid yet still pay more in transmission charges because of its distance from other generation sources.

5 21. Our members have considerable experience with investing in expensive machinery in highly competitive environments and none of them would ever consider such a convoluted approach as proposed by the Authority s TPM Second Issues paper to charge for their goods. 22. For the Authority to be true to the principle of service based pricing then it should be charging for all assets that make up the national grid on a replacement cost basis irrespective of whether an asset was put in the ground 20 years ago or 2 years ago. 23. Instead the Authority cherry picks eight grid projects for its area-of-benefit charge using nonessential criteria such as when the asset was commissioned and allocates costs for such assets using historic costs then proposes any new new assets commissioned by Transpower should be costed on a replacement cost basis. 24. Competitive markets do not make distinctions about prices on the basis that the plant used for making goods was 30 years old as opposed to five years. All assets that make up the grid must be charged using the same basis reflecting the value of the asset rather than splitting assets using convoluted concepts such as area-of-benefit and residual charges. 25. Finally we note that residential users in our region will pay nearly $100 or more for their transmission charges per year. While not a significantly large number, the perceived high cost of electricity is a factor for those on fixed incomes and therefore the more vulnerable in our communities in deciding whether or not to heat their homes. 26. Recent surveys tell us that significant numbers of those on fixed means choose not to properly heat their homes because of the perceived high cost. Recommendation The Authority appears to have taken a very narrow focus on the electricity sector (that is its own area of expertise) without considering what is best for New Zealand. The proposal looks like something a group of experts have designed in a back room without considering the impacts outside that room. Even the Authority admits there are other ways to achieve the same gains without having to reshuffle the charges. Let s look again at those options instead of introducing proposals with no right of appeal that rewrite the way the network has been costed for users for decades.

6 There has been no Working Group input into this process for the past four years and on changes of this scale should we really go ahead without further reference to a Working group or running the proposal through a panel of independent regulatory experts? The EMA believes the proposals should not go ahead in their current form at least until an independent review is sought and completed. That s how the Commerce Commission maintains its good regulatory practice. Surely a third tier regulator like the Electricity Authority should be expected to carry out the same good practice.